Navistar’s Credit Rating Downgraded by S&P

This story appears in the Oct. 14 print edition of Transport Topics.

Standard & Poor’s last week downgraded Navistar International Corp.’s long-term credit rating, voicing skepticism about the truck and engine maker’s efforts to rebuild market share.

On the same day, however, Moody’s Investors Service affirmed its “B3” corporate family rating for Navistar, and Fitch Ratings maintained its “CCC” issuer default rating for the company.

S&P lowered Navistar’s rating one notch to “CCC+” from “B-” on Oct. 7. It said it sees Navistar’s business-risk profile as “vulnerable” and its financial-risk profile as “highly leveraged.”

“The rating downgrades reflect our increased skepticism regarding Navistar’s prospects for achieving the market shares it needs for a successful business turnaround,” S&P credit analyst Sol Samson said in a statement.

While declining to respond directly to the S&P downgrade, Navistar spokeswoman Elissa Maurer pointed to the company’s September order intake as evidence of its “positive momentum” in regaining market share.

Navistar last week announced it received nearly 5,900 orders for Classes 6-8 trucks last month, its highest monthly total since December 2011.

“As far as regaining market share, we recognize that it’s still a top priority, but there is a positive trend,” she said.

S&P said it does not believe Navistar’s Class 8 market share will reach the 18% it believes the company needs for viability “anytime soon.”

Through August, Navistar’s 2013 share of U.S. Class 8 sales stood at 14.4%, according to WardsAuto.com.

Navistar also can’t depend on a robust truck market in 2014 and 2015, S&P said.

“While Standard & Poor’s is not forecasting a decline in the overall truck market, neither can we rule out a slump in the medium term,” the firm said.

Moody’s assessment painted a more positive picture.

The firm said it expects Navistar’s “successful” incorporation of Cummins engines to enable it to regain lost market share and that progress in addressing component failures in older engines will “significantly reduce” warranty expenses.

“During the coming quarters, we expect to see clear evidence that Navistar is harvesting the anticipated benefits of these initiatives,” Moody’s said. “Progress should be reflected in the company’s monthly order book, its retail share position in both medium and heavy-truck sectors, and a decline in warranty charges.”

Fitch said it believes Navistar’s actions to revise its engine strategy and improve liquidity “could support stronger operating results and rebuild financial flexibility over the long term.”

Also on Oct. 7, Navistar announced a private offering of $200 million of senior subordinated convertible notes due in 2018. The company said it also would grant the initial buyers an option to purchase up to an additional $30 million of convertible notes.

Navistar, based in Lisle, Ill., said it intends to use the proceeds from the offering, along with $270 million in borrowings from its financing subsidiary, for “general corporate purposes,” which may include capital expenditures and repurchasing a portion of its outstanding convertible notes due 2014.

“That just helps us enhance liquidity,” Navistar spokesman Steve Schrier said. “We’ve said all along that strong liquidity has been a major focus of our turnaround.”

Moody’s described the new note offering as a “positive development in that it will provide additional liquidity until the anticipated operational improvements are more fully realized during the course of 2014 and the company’s operating cash flow turns positive.”